Ability of NC Flex to Offer a Voluntary Indemnity Plan and Voluntary Alternative

Indemnity Plans for Dependant Health Care Coverage.

Dear Mr. Goodwin:

You have asked, by letter dated July 26, 2001, for our opinion regarding whether the statutes that govern the Teachers’ and State Employees’ Comprehensive Major Medical Plan (“the State Health Plan”) and the Statewide Flexible Benefits Program (“NC Flex”) would permit NC Flex to offer the following types of plans for State employees:

For reasons set out below, it is our opinion that NC Flex may offer the voluntary indemnity plan described in (1) above. Whether NC Flex could offer a voluntary indemnity health plan that provides health benefit alternatives to employees for dependant health care coverage would depend on the specific provisions of the plan in question.

N.C. GEN. STAT. §§ 116-17.2 and 143-34.1(d), which authorize the creation of a flexible benefits program for employees of the University of North Carolina and for State employees, expressly provides: Mr. Carl Goodwin February 5, 2002 Page 2

This plan shall not include those benefits provided to employees [and officers] under

[Article 1A of Chapter 120 of the General Statutes and] Articles 1, 3, 4, and 6 of

Chapter 135 of the General Statutes.

(The provisions in brackets are contained in N.C. GEN. STAT. § 143-34.1(d) only.) As we noted in our November 3, 1995, advisory opinion to Ronald G. Penny, former State Personnel Director, these provisions prohibit NC Flex from duplicating the benefits offered by the Legislative Retirement System of North Carolina, the Teachers’ and State Employees’ Retirement System of North Carolina, the State Health Plan, and the Disability Income Plan of North Carolina. We further noted that the reasons for this are readily apparent: it is in the State’s best interest not to have optional employee benefit plans that duplicate or compete with the benefits offered by these plans, each of which is designed to provide basic benefits of uniform design to the employees covered by it. Similarly, it is not in the best interests of employees to contribute to flexible compensation and benefit options that merely duplicate the benefits already received from State-sponsored plans.

The question remains, then, whether the proposed plans you have described in your letter will duplicate the benefits offered by the State Health Plan pursuant to Chapter 135, Article 3, of the North Carolina General Statutes. With regard to the first proposal you described – offering indemnity coverage – you provided information on the plan description submitted to your office in response to Request for Proposal #100908. These materials show schedules of payments that would be provided under the plan. Upon review of these materials, it appears that the benefits offered under this plan, which are provided as set dollar amounts rather than as indemnification of a participant’s actual deductible, coinsurance and copayment expenses, do not duplicate the benefits offered by the State Health Plan. Rather, this plan would simply provide for payments of set amounts upon certain occurrences, such as hospitalization, heart attacks, etc. The benefit offered by this plan, then, are not unlike the benefits offered by the accidental death and dismemberment plans that NC Flax has offered. In our opinion, then, NC Flex is not prohibited by N.C. GEN. STAT. §§ 116-17.2 and 143-34.1(d) from offering the voluntary indemnity plan that provides hospital confinement, short-stay, rehabilitation unit, surgical, heart attack, stroke, coma, paralysis, ambulance, and wellness benefits described in the materials you sent with your letter.

With regard to your other question – whether NC Flex can offer a voluntary indemnity health plan that provides health benefit alternatives to employees for dependant health care coverage – we have not been provided with a specific description of any proposed plan or plans. It is my understanding that there is not, in fact, any specific plan under consideration. We are not in a position, then, to offer an opinion as to whether any possible plan might be prohibited by N.C. GEN. STAT. §§ 116-17.2 and 143-34.1(d). We can only note that NC Flex cannot offer any plan that duplicates benefits offered to employees by the State Health Plan. This, of course, raises the issue, which we understand to be a part of your question, of whether dependant health care benefits are “benefits provided to employees” within the meaning of N.C. GEN. STAT. §§ 116-17.2 and 14334.1(d). It is our opinion that they are.

Mr. Carl Goodwin February 5, 2002 Page 3

It is true that dependant coverage is optional under the State Health Plan. That is, an employee can elect to cover or not cover his or her dependants through the State Health Plan. It is also true that dependant coverage is paid for solely by the employee premiums, without any contribution from the State. Nevertheless, we believe that dependant coverage is still a benefit provided to employees within the meaning of N.C. GEN. STAT. §§ 116-17.2 and 143-34.1(d). Clearly, it is a benefit to employees to make dependant coverage available in the same plan in which the employee participates and on the same terms.

Moreover, as we have noted, N.C. GEN. STAT. §§ 116-17.2 and 143-34.1(d) prohibit competition with the State Health Plan. Without question, dependant health care coverage offered by NC Flex would compete with the State Health Plan. It would decrease the number of dependant participants in the State Health Plan. Because the benefits offered by NC Flex would be available only to active State employees and not retirees, the smaller pool of participants remaining in the State Health Plan would most likely also be a less-healthy pool. This is particularly true if preexisting condition restrictions enabled only the employees with healthier dependants to take advantage of a plan offered by NC Flex. This would almost certainly have the effect of driving up dependant care premiums for those who remain in the State Health Plan. In our opinion, this is precisely the type of competition that the General Assembly intended to prohibit in N.C. GEN.STAT. §§ 116-17.2 and 143-34.1(d). Accordingly, we believe that dependant health care benefits are “benefits provided to employees” within the meaning of N.C. GEN. STAT. §§ 116-17.2 and 14334.1(d).

For the foregoing reasons, it is our opinion that NC Flex may offer the indemnity plan described in materials sent with your July 26, 2001, letter. Further, we cannot offer an opinion as to whether NC Flex can offer a voluntary indemnity health plan that provides health benefit alternatives to employees for dependant health care coverage without seeing the specific provisions of any such plan.